“Fear does not prevent death. It prevents life”
“When one door of happiness closes, another opens; but often we look so long at the closed door that we do not see the one which has been opened for us.”
- Helen Keller
“The fear of death follows from the fear of life. A man who lives fully is prepared to die at any time.”
- Mark Twain
Most new A Few Things….readers come from a recommendation from a friend. If you enjoy it, you can share the URL on social media or just forward this email to someone who might like it.
A. Negative Sentiment
The San Francisco Fed’s News Sentiment Indicator, which tracks the economic/market sentiment of 16 major US newspapers, shows that the media continues to push an incredibly dour picture of the economy.
Three things dominate our news cycle right now. They’re all bad…
COVID case numbers (funnily enough, the news no longer reports new deaths or hospitalizations. Both of which continue to drop)
Election mess (everyone is bracing for a drawn-out contested election)
Failure of fiscal and all the bad things that means for our weak economy
But what the FED is saying (in the last week) publicly is that intend to keep rates low for a very long time:
"What I think will be surprising a little bit to markets is that the economy will continue to improve, possibly more rapidly than financial markets currently think, and yet the Fed will just keep with its current policy. To the extent there’s a surprise ahead in 2021, I think that may be what the surprise is."
- Federal Reserve Bank of St. Louis President James Bullard
"At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship. Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth."
- Federal Reserve Chair Jerome Powell
The negative sentiment (and it’s echoed in every client conversation I have) combined with benign monetary policy, upcoming further fiscal stimulus (in my view) and the gross underweighting of risk assets makes for an incredibly bullish tailwind on risk assets.
What does the world look like in January 2021?
I’ll leave you with a quote from Nassim Taleb that sums up my view on media sentiment:
"To be completely cured of newspapers, spend a year reading the previous week's newspapers."
B. The Wake Up Call
I just finished reading “The Wake Up Call: Why the pandemic has exposed the weakness of the West - and how to fix it”.
In the last few months I have often wondered how a little bit of RNA completely destroyed our way of life.
Where and how did we fail as a society and what do we do now?
John Micklethwait is the editor-in-chief of Bloomberg News, and previously of The Economist. He has co-authored six books with The Economist’s political editor Adrian Wooldridge.
The book discusses the mess we are in now and proposes possible ways out.
This is a book that takes the idea of Plato’s Republic seriously.
Firstly, what the pandemic exposed:
The book’s central thesis, is that when viewed through the prism of the pandemic, the difference between good and bad government “is literally the difference between living and dying”.
In the UK, we have had over 600 deaths per million, with the US close behind; whereas in Germany, there have only been 100 per million, so as a country, they are six times safer and more efficient than us. The numbers in Asia are much lower still: in the region of 10 or 20 deaths per million in places like Japan, South Korea, Thailand and Singapore.
This is a staggering difference.
China have reported just three deaths per million; even if they are hiding 90% of their deaths, they have still done 20 times better than we have!
The authors use the Hobbesian concept of the “Leviathan” to explain how western democracies have evolved. Thomas Hobbes, born in the late 16th century, saw that we needed a powerful state to prevent us from trying to kill each other, which is what happens in “a state of nature”. For Hobbes, we are all little atoms of appetite and fear.
Since then governments have grown in size and scope, but they have not proportionally grown their capacity to serve and this is what has got us into trouble.
Here are some statistics that helped me see how big, complex and opaque “government” has gotten:
About 120 million Americans claim benefits from two or more government programmes.
Obama’s Affordable Care Act was 2,700 pages long, and included 28-word definition of a high school” and 140,000 codes for ailments. FDR’s landmark legislation in the 1930’s was just 30 pages long.
In the US tax code, there are 42 different definitions of small business. To open a restaurant in New York, you need to deal with 11 different city agencies.
In the last fifty years, Germany, China and the other Asian countries have spent the time and money to develop state capacity. Far from being “just a bunch of communists”, since the cultural revolution of the 1960s, China has built a successful state system, in terms of health, education and civil service, with civil servants rewarded on the basis of performance and dismissed if they don’t perform. China now has world-beating schools. They have learnt from the Singapore model – and successfully applied it to their vast country.
All of this has slowly meant that we have lost trust in our government, for example one poll in late April showed that 62% of the French had no confidence in their government’s handling of the crisis.
Where The West Is Going Wrong:
China and other Asian countries are attracting the best people to public service, and we aren’t, largely because in the West the rewards are so much better in the private sector. In Singapore, the head of the civil service earns over $1 million per annum; we need to accept paying people at the top of public service good money, and getting rid of them if they aren’t good, if we want to compete.
Our big failure in the pandemic has been around “technical competence” – things like test and trace and opening and closing schools have led to an astonishing revelation about our lack of institutional competence. The crisis has shown just how much the quality of our politicians and civil servants matters; solving our current problems will require the best minds on the job.
One reason they cite for the state lacking this competence is that it does not learn. In the private sector, you have no choice: if a competitor anywhere in the world comes up with a better product or service, you respond or go out of business.
While western governments seem to lack the incentive to improve and learn from the best out there.
The Need For Systemic Reform:
Unlike a lot of what one hears in the media, the book doesn’t think that this is just because of Trump or Johnson that the US or UK failed the Covid test. That is down to having a society, and in particular in the case of the US, a healthcare system, that doesn’t look after the poor, and instead helps the old and rich.
Nor is Trump to blame for the race riots following the death of George Floyd. He did not invent racist beliefs. It is also not his fault that US schools are worse than Asian ones. These problems are all systemic, and changing them will require a lot more than just changing the person at the top.
One of the issues they highlight is a breakdown in our society and interaction between all strata of society. In the past, for example the rich and poor fought side by side in wars, but now that camaraderie is gone, with the rich thinking it’s fine to just give their money philanthropically, but not offer up their brains as well – a contributing factor to the lack of calibre in the public service.
Making Government Great Again:
The stability of a democracy depends very much on the people making a careful distinction between what government can do and what it cannot do. To demand what can be done is altogether in order: some may wish such things accomplished, some may not, and the majority may decide. But to seek that which cannot be provided, especially to do so with the passionate but misinformed conviction that it can be, is to create the conditions of frustration and ruin.
- Senator Daniel Patrick Moynihan
We must now return to Plato’s Republic. Plato argued two points in the book that are relevant today: The first is that good government is vital. The second is that good government depends on the quality of the leadership elite.
According to Plato, the state’s most important job is to spot potential leaders when they are still young and provide them with an education that both stretches their abilities and, even more importantly, inculcates them with a sense of public service. These would be the guardians of the state.
The revolution has to start by convincing the young that the quality of their government really matters. Ronald Reagan’s view that “government is the problem, not the solution” has been around for too long. Changing this attitude will be the key to competing with the East.
To finish the book, John and Adrian use the thought experiment of Bill Lincoln - a combination of two formidable Anglo-Saxon politicians (Abraham Lincoln and William Gladstone) who in the past navigated our democratic society through very difficult times, while not being partisan - Republican or Democrat.
Bill Lincoln would be both left-wing social reformer and right-wing small government who believes in self-reliance. This is what they think Bill Lincoln would do:
Protect and unite
Lift the fog
Simplify, cut, modernise, sell
Stop subsiding the rich and old
A fairer healthcare system
Educate our masters
National service for all
Make government dowdy
Rebuild the West and expand it
If you are concerned about the future of our society, I recommend you check out the book. It’s only ~160 pages, and you can also watch the authors discuss the key ideas below:
C. A Few Things Worth Checking Out:
1. 30 Lessons for Living: Tried and True Advice from the Wisest Americans. LOVED THIS.
2. Great article by my friend Dror Poleg on what I think is the biggest threat to white collar jobs - The TikTokization of Work.
3. Financial Services are 20% of GDP and then another 50% of the tech industries revenues are related to financial services. Which is to say Fintech is a HUGE opportunity. This Ark Invest podcast with Dan Kimerling is great and I listened twice. You will hear a lot more about Fintech given Ant Financial’s IPO.
4. Really enjoyed this MacroVoice podcast with Pippa Malmgren discussing the US Election Outlook. A bunch of insights around our biases and the upcoming US Civil War regardless who wins the election.
5. Fidelity Digital Assets thinks you should hold 5% of your assets in Bitcoin.
6. Got kids or teenagers and want to teach them about investing? Bill Ackman tries to cover the subject in under 45 minutes, and does a pretty good job of it.
Our life is frittered away by detail. An honest man has hardly need to count more than his ten fingers, or in extreme cases he may add his ten toes, and lump the rest. Simplicity, simplicity, simplicity! I say, let your affairs be as two or three, and not a hundred or a thousand; instead of a million count half a dozen, and keep your accounts on your thumb-nail. In the midst of this chopping sea of civilized life, such are the clouds and storms and quicksands and thousand-and-one items to be allowed for, that a man has to live, if he would not founder and go to the bottom and not make his port at all, by dead reckoning, and he must be a great calculator indeed who succeeds. Simplify, simplify.”
- Henry David Thoreau
"Lack of confidence kills more dreams than lack of ability.Talent matters—especially at elite levels—but people talk themselves out of giving their best effort long before talent becomes the limiting factor.You're capable of more than you know. Don't be your own bottleneck."
- James Clear